United States, Elections, and Animal Spirits

Genevieve Signoret & Delia Paredes

(Hay una versión en español de este artículo aquí.)

We continue to share excerpts from our September 11 report, Quarterly Outlook 2023–2025: Soft Landing Yet Again, where we present three scenarios for the global economy over the next two years. You can think of our scenarios as train tracks: each takes the economy in a different direction. A scenario is built on a group of assumptions. Our three sets of assumptions “pivot” the economy from one track to another.

Former U.S. President Donald Trump, the first president or former president in the nation’s 234-year history to be indicted, faces 91 felony counts in four jurisdictions: 34 in New York, 40 in Florida, four in Washington DC, and 13 in Georgia.

Two trials have been scheduled for next year and in two other cases prosecutors have sought or declared that they will seek trials to be held this year.

At the same time, Trump is the favorite to win the Republican nomination for president and is running head to head in the polls with President Joseph Biden to win on Election Day (5 November 2024).

Legal experts agree that no law prohibits someone from running for president on the basis of being under indictment. But what if he’s convicted? And sent to prison?

The Constitution is silent on this question. This has legal experts guessing at various potential outcomes.

First of all, the question may prove moot. Trump could be found innocent on all counts. Or Election Day could come before the trials have concluded. He could be found guilty on one or more counts but not sentenced to prison. Or convicted and sentenced to prison but free pending appeal.

But what if the question does arise? Because it would be unprecedented, it would be sent to the courts.

If the courts were to rule against Trump, how would he react? And how would the radical, violent wing of his base react? Neither he nor they are known for being gracious losers.

What all these questions point to is the potential for the United States to face a constitutional crisis in 2024.

This is tail risk, not a pivotal risk.  We assume under all scenarios that no tail risk materializes.

But we also think that the sheer number of unknowns, the vastness of the uncertainty, surrounding this election are such that the threat could weigh on investors. This issue could tighten financial conditions, fuel volatility, and dampen animal spirits.

In modeling our central scenario, Soft Landing, we assume that these financial tightening and animal-spirit–dampening effects are present (hence a landing), but weak (hence the landing is soft).